5 Tax Implications of the Snowbird Lifestyle
Are you tired of shivering during the cold winter months? Sick of gray skies, snow, ice, and sub-zero temperatures? These “snowbirds” frequently head to places like Florida, Arizona, or California as cooler temperatures move into the Midwest, New England, New York, and other northern states each year. When the temperatures warm, the snowbirds return home, ready to reconnect with their communities during the summer months.
As tempting as it may be to adopt a snowbird lifestyle – especially in retirement – doing so requires some upfront planning. But, depending on your situation, becoming a snowbird can have significant tax implications, especially if you plan to spend a significant amount of time in a different state or country. Here are some items that could trigger potential changes to your tax liability:
- Residency status. Your residency status will affect where you need to pay taxes. In general, if you spend 183 days or more in a state, you’ll be considered a resident for tax purposes and will be required to pay taxes on your income and property. If you intend to split your time between two states, decide which one will be your “domicile,” or your permanent home. You’ll be subject to state and local taxes in the state where your domicile is located. This shouldn’t be taken lightly. Take time to investigate the implications of each state and weigh your options before making a decision. Then, confirm you meet the state requirements to be considered a resident.
- State taxes. If you’re a resident of one state but spend time in another, you may be required to pay taxes to both states. Some states have reciprocal agreements that allow residents to avoid paying taxes in both states, but these agreements can be complex. Every state is different, so it’s important to learn whether you’ll need to pay a state income tax or other types of state and local taxes.
- Income taxes. If you have income from sources outside of the state where you’re a resident, you may be required to pay taxes on that income in both states. This can include income from pensions, rental properties, or investments.
- Property taxes. If you own property in multiple states, you’ll be responsible for paying property taxes in each state. The amount of property tax you’ll owe can vary greatly depending on the state, so be sure to research the local property tax laws.
- Estate taxes. Some states have estate taxes, which can affect the value of your estate after your death. If you own property in multiple states, you’ll need to consider the estate tax laws in each state so you’ll know how your beneficiaries will be impacted.
The tax implications of being a snowbird can be complex, so consider consulting with a tax professional who can help you navigate the laws and regulations. A tax professional can also help you take advantage of all available tax benefits and deductions.
Adopting the snowbird lifestyle can be an exciting and fun way to spend your retirement years, but it’s important to understand the impact it can have on your expenses and tax situation. Before you “fly the coop” to a warmer location, do your research to see if becoming a snowbird is right for you.